University of Florida
College of Business Administration
FIN 7446
Financial Theory
Section: 7227
Fall 2009
Lecture times: periods 5-6, TR Instructor: Farid AitSahlia
Lecture room: MAT 0014 Office hours: by appointment
Office telephone: 392-5058
Fax: 392-0301
Email:
Course Overview and Objectives
This course is an introductory Ph.D. level course in theoretical financial economics. The main purpose is
to introduce mathematical techniques of modern portfolio theory and asset pricing. These include: Fisher
separation, the theory of choice, Arrow-Debreu state pricing, implications of no arbitrage, multi-period
exchange economies with complete and incomplete markets, continuous time mathematics, stochastic
discount factors, Hansen-Jagannathan bounds, the consumption-based asset pricing model, the capital
asset pricing model, arbitrage pricing theory, dynamic programming, Merton’s inter-temporal CAPM, the
mathematics of the efficient frontier, and option pricing (binomial, partial differential equation, and risk-neutral valuation approaches). In this course, the primary emphasis is on mathematical tools, combined with an intuitive interpretation of assumptions and results. By the end of the semester, students should be able to read effectively a high-quality research paper on asset pricing.
Prerequisites
This course presumes an MBA level understanding of finance and business and a math background that
includes upper-level undergraduate (multivariate) calculus, statistics, and matrix algebra. Stochastic calculus will be introduced in an intuitive manner but students are expected to be comfortable with basic concepts of differential equations.
Textbooks and Materials
The required texts for this class are listed below. You may acquire one or all. Feel free to discuss your choices with me prior to making a purchase. I will put all on reserve at the library.
Skiadas, C. Asset Pricing Theory, Princeton University Press (2009).
Cochrane, J. H., Asset Pricing, Princeton University Press (2005).
Pennacchi, G. Theory of Asset Pricing, Pearson Education (2008)
Hull, J. Options, Futures, and other Derivatives (7th ed.) Prentice-Hall (2008).
Additionally, we will use limited material from the following
Duffie, J. D. Dynamic Asset Pricing Theory (3rd ed.), Princeton University Press (2001).
Campbell, John Y., Andrew W. Lo, and A. Craig MacKinlay, The Econometrics of Financial
Markets, Princeton University Press, 1997.
Huang, Chi-fu, and Robert H. Litzenberger, Foundations for Financial Economics, North-Holland,
1988.
Luenberger, D. Investment Science , Oxford University Press, 1997.
Grading
The grading components will be as follows:
Reading/Class Presentations 10%
Problem sets 20%
Midterm 30%
Final 40%
I will put a more detailed course schedule by the first lecture.